Ever since 2008 I’ve been fighting to lower my property taxes every year. If I didn’t fight, the SF Property Assessor’s office would undoubtedly keep raising my assessed value all throughout the financial crisis because they need to extract as much money from homeowners as possible. Renters certainly aren’t going to volunteer to pitch in if they can simply vote to raise property taxes. Too bad everything just comes around in the form of higher rents. In other words, together we must stand united against the government.

Your main mission as a homeowner is to convince the assessor’s office your property is worth as close to $0 as possible. Anybody who is proud their assessed home value is higher is being silly because the government will take advantage of you. The same goes for people who make a lot of money telling everybody exactly how much they make. Practice the mantra of Stealth Wealth and believe your primary home is a dump in order to build your net worth further.

As you may have read from my Net Worth Rule For Car Buying post, I’m looking into buying the redesigned Range Rover Sport HSE to replace Moose, a 15 year old Land Rover Discovery II. The 2017 Range Rover Sport can be had for roughly $73,500 MSRP, an exorbitant amount of money for a vehicle.

SUVs are an anathema to eco friendly San Francisco. But I’ve long argued that if you don’t completely destroy your car before buying a new car, you are still ADDING pollution to the world. I like SUVs because they ride high so I can see what’s going on in traffic. They can go through snowstorms with ease, a necessity for when I go up to Tahoe in winter. Furthermore, I’d rather be in a larger vehicle vs. a smaller vehicle during accidents.

SUVs have become more fuel efficient thankfully. The new Range Rover Sport V6 engine produces 345 hp at 17 city / 23 highway. Just 10 years ago such an SUV would be a V8 and run around 12 city / 17 highway mpg with only 185 hp. But this is not a post to defend purchasing a large vehicle. This post’s purpose is to discuss the aspect of purchasing a vehicle for your business in order to deduct the expense!

RULES FOR SUV / TRUCK PURCHASE FOR A BUSINESS

It should come as NO surprise to long time Financial Samurai readers that the IRS admitted to targeting conservative groups since Obama became President. The government already discriminates against those who make over a certain amount by charging higher taxes even though they already pay for the majority of all taxes. Meanwhile, the deductions and credits you get for things such as education and children get eliminated if you make over an absurdly low amount. Conducting body cavity searches to shake more tax dollars out of Republicans is business as usual.

Make no mistake that if a Republican was President, liberal groups would also be targeted by the IRS. Everybody naturally discriminates against everybody. Sometimes the discrimination is overt and evil, other times the discrimination is covertly done out of convenience until discovered as is the case with the IRS.

The bottom line is that people have a strong proclivity to take care of their own, no matter what. In this article I’d like to discuss ways in which people can significantly reduce their chances of getting audited by the most powerful organization in America.

THREE EFFECTIVE STRATEGIES TO AVOID AN IRS AUDIT

Despite mentally writing off the value of my Social Security benefits, in the bottom drawer in the way back of my cob-webbed mind, I know it will be there to fund my early bird special seafood buffets when I’m retired. Sure, the eligibility age for withdrawal might rise from 62 to 67, but we’re all hopefully living longer too. Besides, who really needs Social Security benefits if we’re saving over half our after-tax income for some many years anyway? Don’t get greedy now!

The Middle Class of America has given me a tremendous boost in conviction that Social Security benefits will be around for all, forever. If you read the comments on my post, “Disadvantages of The ROTH IRA: Not All Is What It Seems“, people have come out in force defending the virtues of the ROTH IRA, even though I clearly telegraph why we should not be contributing to a ROTH IRA if we haven’t maxed out their traditional IRA and 401K yet. To pay more in taxes to an inept and corrupt government that shirks on its promises is an atrocity.

We should ignore the fact that people comment on things even if they know they are wrong, to justify why they did something to make them feel better. Instead, we should take comments at face value. Those who support the ROTH IRA most likely have opened a ROTH IRA. Because they’ve opened a ROTH IRA, they believe that the government will do better with their money than they can on their own. Remember, only middle class people are allowed to contribute to a ROTH. Higher earners be damned!

As you know, I have an open mind and always look at both sides of each debate. My conclusion from the comments in my ROTH IRA post is this: Because so many people support the ROTH IRA, the people of America believe in the efficiency of the government and the fact that Social Security will be fully guaranteed at the age of eligibility. If people did not believe the government would make due on its promises to fully pay for Social Security, there’s no way people would give the government more of their money to manage!

People Vote With Their Pocket Books

Even though I am somewhat miffed at folks who are contributing to a ROTH IRA despite my reasoning, I am hopeful that the middle class of America believes in our government so much. This is why I firmly believe Big Government will continue to get elected over and over again. I’ve challenged Republicans to bet me whatever they want up to $1,000 to take the other side. My offer still stands for any of you who don’t believe Obama will get re-elected.

I am also ironically pleased that the income cut off limit for ROTH IRA contribution is so low at $105,000/$169,000 for singles and couples. This arbitrary income cut-off limit helps protect the thousands of hard working Americans who make more than this from falling into the trap of giving more of their income to the government to waste. At least the upper income group is being looked after at the margin.

The middle class, defined as sub $122,000 for individuals by the government, is what makes and breaks politician’s futures. Without the middle class, politicians cannot get elected and abuse their power in only ways that they know how they can. Hence, no politician will be stupid enough to try and raise taxes on individuals making less than $122,000. President Obama has wisely set the cut-off attack line at $200,000 for individuals.

The Only Social Security Risk Is Your Loneliness

If you are single and die before drawing Social Security, you’re screwed. But that’s OK, since you’re dead anyway. The government wins and you lose because you’ve paid all that money into the system only to reap no rewards. Oh, it’s kind of like the ROTH IRA come to think of it! But, that’s cool, because contributors are cool with it too, so never mind!

To clarify, it’s your closest relatives who are SOL if you die before collecting Social Security. Your Social Security benefits do not get passed down to your children to allow them to draw when they reach the full retirement age of 67. Your money will be forever kept by the government to do what it wishes.

If you’ve ever thought that there’s too many financial penalties for being married, especially if both spouses are good income earners, then consider the social security benefits of marriage. If one spouse dies, the other spouse gets to benefit from their social security benefits.

People Love The Government

Given the middle class believes in the government, they also believe that Social Security will be there for them when they retire. If not, all hell will break loose and politicians will no longer be able to gain and retain power.

People do not feel that it’s wrong the government gets to keep all the Social Security benefits if a single person dies. If people felt this was wrong, we’d do something about it. My belief in the American people has been renewed. I want to thank all ROTH IRA contributors and voluntary extra tax payers for their kindness and patriotism.

If you can count on yourself, then you can surely count on Social Security which is funded by you and your employer to take care of you in retirement!

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Many of my actions are driven by guilt. I’m constantly asking myself how I could be so lucky when there are so many folks just struggling to get by. My trip to India ten years ago made me stop overeating given all the poverty I saw. If I can’t help them, at least I won’t disrespect them through gluttony.

Even small, innocuous things are constantly being driven by guilt. After being up 4-2 in the second set against my friend Jaabir, I decided to tank the match just so he wouldn’t have to pay the $20 bet he initiated. I felt bad taking his money given he’s already down $140 this year alone. Lest you think I’m the one egging him on to bet, I’m not. He’s got an undesirable thirst to smack talk, while I have a consistent desire to defend my honor whenever challenged.

I absolutely hate raising the rent on my tenants because I feel bad. Although San Francisco rents went up by an estimated 10% in 2015, I only raised my tenant’s rent by 3%. My tenant is kickass awesome and to ask her for more money just felt dirty. The only time I do raise the rent is when there is turnover, which doesn’t happen too often.

One of the main reasons why I wrote, Renters Should Pay More Taxes is so that I could get over my guilt of raising rent. I’d much rather have the tenant pay the government directly for an increase in property taxes rather than through me. I wanted renters to get agitated by the notion of a “Renters Tax” where a renter sends in an annual check to their local assessors office twice a year based on the amount of rent they pay. This way, renters can directly experience the discomfort of paying for unnecessary spending and maybe, just maybe there will be less legislation that passes that sticks it to homeowners since we are the 30% minority.

It’s easy to spend another person’s money on yourself. With a Renters Tax, we all share in the burden of new government expenditures voted on by the people and will therefore think more carefully about the next legislation that proposes to raise taxes. The counter argument is that renters are already partially paying property taxes through the rent they pay. I realize this, but this is only true in a perfectly free market.

If there were no restrictions to the amount of rent a landlord could charge, and if landlords were not human beings with guilty consciences, but robots who could automatically adjust rent prices based on algorithms that measures current supply and demand, then a Renters Tax is not necessary. Unfortunately, a good portion of landlords do feel guilty. My fellow landlords I’ve surveyed all say that guilt is their #1 reason for not raising the rent to market rates. The #2 reason is rent control. If you own a multiple unit building in San Francisco that was built before 1970, a landlord can only raise rent by an index earmarked to inflation e.g. 1-3% a year.

If you read the fiery comments from the Renters Should Pay More Taxes post, you’ll see that renters bristle at the idea of paying more taxes just like homeowners. Hence, I think I’ve created a understanding between homeowners and renters where everybody who votes for more spending is willing to pay more taxes and therefore higher rents.

CHARGE WHAT THE MARKET CAN BEAR

Based on the comments from the Renters Tax post and my experience as a landlord for the past 11 years, I’d like to present the following reasons as to why every landlord should always raise their rent as much as possible.

* Renters don’t mind higher rents. I’ve always gone under the assumption that as a renter, it would be better to have lower rents than higher rents. Based on the amount of legislation that has passed to increase spending on things like multi-billion dollar bullet trains to LA from SF we don’t need, I am wrong in my assumption. Renters believe they are definitely paying their fair share of property taxes through the rent they pay. Given increased spending legislation that results in higher property taxes is strongly supported by renters, it is only logical to conclude that renters do not mind higher rents, otherwise they would stop voting for legislation that ultimately raises property taxes and therefore rents.

* Never sell yourself short. If the market is paying $100,000 for your talents as an engineer, you wouldn’t accept $80,000 to do the same work as others who earn $20,000 more. If the market says renters are willing to pay 15% more this year than last year, you’d be silly to accept $3,000 a month when you can get $3,450 a month. By not charging $450 a month more, you are robbing yourself of financial freedom down the road. Maybe $450 could be used take care of your own family, provide braces for your kids, or help someone in desperate financial need. If someone wants to pay you $3,450, then go for it.

* Property owners take risk. Every asset class carries inherent risk. Property is no different as we’ve seen in recent years. It takes a lot of discipline to save up for a 20% downpayment. I had to live in a studio apartment for two years with another fella in order to save 50% of my after tax income out of college. There’s also no guarantee you’ll ever see your money again once you deploy your funds into your first property. The only risk a renter faces is no return on their rent and being a price taker to ever rising rents. Renters are free to move with a standard 30 day notice and have no stake in the game. Landlords don’t invest in property for charity. Landlords invest in property to make a return. If there is risk, there needs to be reward.

* Sharing the burden feels wonderful. One of the reasons why renters don’t mind paying higher rents is because renters believe just like homeowners that a better educated youth provides for a stronger society. Supporting our children is one of the most powerful reasons used to pass legislation that increase taxes. There is great pride in everybody pitching in to pay more taxes. In addition to public education, property taxes are used to pay for local infrastructure, firefighters, and police officers. We should not rob our tenants of the right to help contribute to society in the form of higher rents.

* Utilize a property manager. If you pay someone to manage your property, make sure your property manager earns his keep by charging market rates. The property manager should shield owners from as much hassle and contact from the tenant as possible. Property managers usually charge 1-1.5 months worth of rent for their services a year. Get your money’s worth.

* Make your tenants aware of the market. You don’t want to wake up 15 years from now and realize you are charging 40% below market rent because you felt too guilty to raise prices over the years. It will be impossible to catch up if your unit is under rent control. When it’s time for you to raise the rent, simply highlight as many comparables as possible you’ve found online justifying why the rent is going up. Make your tenants feel good by not charging up to the maximum, but perhaps 95%.

* Set expectations early. If you are getting a new tenant, highlight your rent increase plans. I make it a point to let all my tenants know that one of my condos is not under rent control and that I have historically raised rent once every two years, but not by more than 5%. Once your tenant’s expectations are set, so long as you don’t increase your rent sooner and higher than what you’ve said, they should be fine.

Rent control leads to shortages (Q1 to Q3) and higher prices (green line to P1).

WE ARE STRONGER TOGETHER THAN APART

Renters need good landlords who are attentive to their needs. I’m always very responsive when something breaks in one of my properties because I want my tenants to have the best experience possible. I even have a system where I give my tenants a handyman resource sheet and authorize them to charge up to $100 per job without the need for my approval. So far, I have loved every single one of my tenants and they have loved me back in return.

Landlords need renters to help pay their mortgage, provide retirement income, and build wealth over the long term. As an early retiree with no W2 income, rental income is now more important than ever for my survival. It’s in my best interest to provide the best quality product so I can earn the highest return. If I ever get rich enough, I might even convert the rental into a furnished pied de terre where my family and I can stay for several months a year and not even bother with tenants.

To all the landlords out there, take a look at the latest comparables online and see what they are going for. Raise your rents to match market rents and stop feeling guilty. Renters have given landlord’s their blessings with their support of legislation that increases spending. If we can get the increased tax revenue efficiently funneled to those programs which need the most help, I’m all for rising property taxes and rent. Together we can build our cities stronger one tax payer and one rent payer at a time.

Wealth Building Recommendations

* Shop Around For A Mortgage:LendingTree Mortgage offers some of the lowest refinance rates today because they have a huge network of lenders to pull from. If you’re looking to buy a new home, get a HELOC, or refinance your existing mortgage, consider using LendingTree to get multiple offer comparisons in a matter of minutes. Interest rates are back down to ALL-TIME lows due to tremendous volatility and uncertainty in the markets. When banks compete, you win.

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Update for 2017 and beyond. Now is more important than ever to track your net worth because the easy money has already been made. I suspect uninspiring times until 2019-2020 as we’ve just gone through a 7-8 year bull run since the financial crisis. Refinance your mortgage, increase your savings, and watch your money like a hawk!

Your property assessors’ #1 goal is to collect as much property tax from you as possible. Your goal as a homeowner is to make your home look like the dumpiest of dumps to pay the least amount of property tax possible. An asteroid could wipe out your entire city, but if the assessors office survives, they will come for you to collect!

Ever since the downturn, I’ve religiously filed a property tax appeal to get my assessed value lowered. In the midst of the financial crisis I was shocked that the assessors office appraised my primary residence for $100,000 more. If they got away with it, I would have paid roughly $1,200 more in property taxes that year. I ultimately won my appeal three months later and kept my assessed value the same as before.

For the next three years I got more aggressive and managed to lower my assessed value $100,000 below my purchase price. When the world is falling apart, it’s an easy sell to say your property’s value is also going down the tubes. In fact, my goal is to get the city to assess my property as close to $0 as possible.

Now that real estate is roaring back, I’m having a much harder time convincing the city I live in a rundown shack. This post will highlight how I almost got screwed over by the San Francisco property assessor again, and how I fought back and came to a compromise. Just like how every homeowner should be taking action to refinance their mortgage, every homeowner should take action by filing property tax appeals!

A CONVERSATION WITH AN ANGRY PROPERTY ASSESSOR EMPLOYEE

If you are like me and millions of other screwed Americans, you owe taxes by April 15. I used to think that it was always better to owe taxes each year, but that was when the 10-year yield and CDs were providing a healthy 4% annual return. Nowadays, you’re lucky to get a 2% return on either instrument. We won’t even talk about the average money market savings rates at 0.1-0.2%. As a result of such low risk-free opportunity costs, I’ve been an advocate of folks getting a small tax refund since 2009 when the world was ending.

After doing my own taxes for the 10th time this year and always getting a small refund, I will finally be sending in a check for a vomit inducing five figure amount on top of an already six figure amount in taxes paid for 2012. So what happened that caused me to make such an erroneous calculation since I should be an expert at doing my own taxes by now? I didn’t make a mistake. Instead, the government and the voters of California got me.

PROPOSITION 30 PASSES: IF ONLY EVERYBODY COULD PITCH IN

When you don’t know your boss is getting a huge bonus for saving the firm money by screwing your bonus, you’re happy. When you don’t know the reason why you didn’t get into the fellowship program is because the managing director is a woman who hates men with different political ideals, you’re happy. When you have no clue your boyfriend is hooking up with your best friend, you’re happy to carry on!

I’m generally a very happy go lucky type of guy. My facial expression seems to have “smile” as a a default setting. But there is one time a year where I get angry and randomly shout obscenities while no one is looking. The one time of year is during tax season.

As a proud financial masochist, I decided to redo my taxes a second time online just to make sure I didn’t make any errors. I’ve got a five figure tax bill for the first time in my life thanks to AMT, some one off incomes, and retroactive tax law changes in the state of California which I may write about more in the future.

Lo and behold I found a five figure error where I inadvertently inputted my property tax bill instead of my mortgage interest for one of my rental properties. My error makes me wonder what else I’ve done wrong. Despite my mistake, I’m a big proponent of everyone doing their own taxes. This post will highlight four reasons why, as well as five reasons why you’re silly.

THE MAIN REASONS TO DO YOUR OWN TAXES

The joy of doing your own taxes is that you know where every single dollar of income goes. When our tax bill is not being optimized, we call this “leakage.” I finished up my taxes with H&R Block and realized I paid more in taxes than the total amount I spent to enjoy life. Holy Friedman Batman! Something is seriously wrong when the government is allowed to spend more of your money than you can spend on yourself. Or maybe I’m just not spending enough at all?

I’ve never thought about this ridiculous fact until I started comparing notes with a fellow tax hating friend. Everything can be explained by simple math. Given I saved around 70% of my net income after taxes last year, I have 30% in net disposable income to spend. If I pay more than a 30% effective tax rate (Federal+State+Medicaire+3.8% Medicare Investment Tax+Social Security etc), it ends up that I’ve paid more to the government than I’ve spent on myself!

This post will focus on your TITTS: Total Income Taxes paid (effective tax rate) divided by your Total Savings after paying taxes. If you can save as much as your effective tax rate, then you are on the right track because it means you are at least keeping as much of your money as the government is taking. Your TITTS ratio will determine whether you are winning or getting bent over by the government. But first, a little philosophy about taxes.

MATH, TAXES, AND THE WAY OF THE WORLD

Ever since I was 25, I paid more than $100,000 a year in taxes. You don’t get a thank you card if you pay over $1 million dollars in taxes in case you’re wondering. Instead, you get the government hooked on your juice with fishing letters from the IRS asking for more!

I didn’t mind paying my fair share of taxes when I was in my 20s because I was excited to progress in my career. I felt lucky to just have a job that allowed me to save like crazy and help others financially through charitable donations. As I grew older, my views on income taxes changed.

Since the turn of the century, we’ve witnessed a devastating war in Iraqistan that by some estimates has taken over 1 million lives. We’ve observed Congress do nothing to pass a balanced budget since 2008 while giving themselves pay raises every single year. During the 2009-2010 financial crisis, the government doled out massive bailouts to institutions such as AIG while allowing executives to pay themselves millions of dollars. AIG even had the audacity to contemplate suing the federal government this year for wrongful terms! What the hell.

I felt sick to my stomach supporting such atrocities by a government who also discriminates against certain citizens while displaying no fiscal discipline. Why can’t we all be treated equally? Why is there a marriage penalty tax? How come your Social Security benefits go back to the government if you die without a surviving spouse? I don’t know. When it takes 18 months for the city to fix a noisy and dangerous manhole cover, perhaps paying tens of thousands of dollars in state taxes is not worth it anymore. How about $5 bucks instead?

John F. Kennedy once said, “Ask not what your country can do for you, ask what you can do for your country.” Unfortunately, those words were spoken on January 20, 1961. Most of us weren’t alive then since the median age in America is only 35. I’m afraid our society has permanently adopted a one-way take, take, take mentality.

I think I’ve paid my dues. Unless you’ve paid as much in taxes, please don’t criticize me for writing an article on how to help you legally pay less taxes. To build wealth, we must minimize our expenses. Taxes are one of the largest expenses we’ll ever incur.

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